Depreciation Methods for Fixed Assets:
  1. Straight Line:
    • Straight Line depreciation is a depreciation method that expenses an asset value in equal amounts over its useful life. Useful life is the period of time that an asset is determined to have commercial value for depreciation purposes. The IRS determines useful life depreciation periods for tax depreciation methods.
  2. Declining Balance:
    • With the Declining Balance method, you apply the same depreciation rate each year to the adjusted basis of your property using the applicable convention.  If you use the Declining Balance method, you must switch to the Straight Line method in the first year in which it gives an equal or greater deduction.  The entry in the Depreciation method field does not change.
  3. Sum of the Years Digits:
    • Sum-of-the-Years’-Digits is an accelerated depreciation method. Under this method, depreciation for each year is determined by multiplying the asset’s cost less salvage value by a fraction in which the number of years remaining in the asset’s life is the numerator, and the sum of the years’ digits, or n(n+1)/2, is the denominator. In the formula, n is the asset’s useful life in years.
  4. ACRS (Accelerated Cost Recovery System):
    • ACRS, or Accelerated Cost Recovery System, is a depreciation method used for assets placed in service after 1980, but before 1987
    • Warning: ACRS is an IRS depreciation method not commonly used by non-profit organizations.
  5. Alternate ACRS:
    • Alternate ACRS is a depreciation method that uses a modified Straight Line depreciation calculation. This method should be used only for assets placed in service after 1980, but before 1987
    • Warning: Alternate ACRS is an IRS depreciation method not commonly used by non-profit organizations.
  6. MACRS (Modified Accelerated Cost Recovery System):
    • MACRS, or Modified Accelerated Cost Recovery System, is a depreciation method used for assets placed in service after 1986.
    • Warning: MACRS is an IRS depreciation method not commonly used by non-profit organizations.
  7. MACRS (ADS):
    • MACRS (ADS), or Modified Accelerated Cost Recovery System – Alternative Depreciation System, is a Straight Line depreciation method used for the following: tangible property used outside the United States, tax-exempt
      property, tax-exempt bond-financed property, imported property covered by executive order, farming property under some circumstances, and listed property used 50% or less for business.
    • Warning: MACRS (ADS) is an IRS depreciation method not commonly used by non-profit organizations.
  8. MACRS 150% Election:
    • MACRS 150% Election is a Declining Balance method that provides greater deduction during the earlier recovery years.
    • Warning: MACRS 150% Election is an IRS depreciation method not commonly used by non-profit organizations.
  9. MACRS Mid-Quarter Convention:
    • Mid-quarter: Fixed Assets calculates 1 1⁄2 months of depreciation for the quarter the asset is placed in service or disposed.
    • Warning: MACRS Mid-Quarter Convention is an IRS depreciation method not commonly used by non-profit organizations.
  10. Defined Amounts:
    • With Defined Amounts depreciation, you can designate specific amounts of depreciation for each period.
  11. Custom Schedules:
    • With Custom Schedules organizations can manually define the depreciation method that fits the organizations specific needs.  To create a Custom Schedule in Fixed Assets select Configuration > Custom Depreciation Schedules > New Custom Depreciation Schedule.

For more information on calculating depreciation, refer to How to calculate depreciation (BB75698) or view the configuration guide for Fixed Assets.